Beware unintended consequences of new campaign ad ruling

On Monday, a three-judge panel of the Court of Appeals for the D.C. Circuit refused to stay a lower-court ruling that requires corporations, unions and non-profits engaged in a certain form of campaign-related advertising to disclose their donors. In a 2-to-1 decision, the appeals court held that there’s no irreparable harm in waiting for a full appellate record to decide whether U.S. District Judge Amy Berman Jackson was correct in ruling that the Federal Election Commission may not curtail disclosure requirements Congress specified. In fact, D.C. Circuit Judges Judith Rogers and Thomas Griffith said the public’s interest is in disclosure, rather than secrecy.

On its most basic level, the ruling means that groups like the U.S. Chamber of Commerce, Crossroads GPS, Americans for Prosperity and other non-profits that run a particular kind of election-related advocacy ad must reveal who is giving them money. (The case doesn’t affect political action committees, which have their own set of rules.) “This is a very important victory in the battle to end secret contributions being funneled into federal elections,” said Democracy 21 President Fred Wertheimer, who was co-counsel for the plaintiff in the underlying case, Representative Chris Van Hollen, a Maryland Democrat. “This case represents the first major breakthrough in the effort to restore for the public the disclosure of contributors who are secretly providing massive amounts to influence federal elections,” Wertheimer said in a statement. (Here’s an excellent overview of the case from the L.A. Times.)

But here’s the thing: The D.C. Circuit’s ruling may have the entirely unintended effect of pushing more money from politically active non-profits into television and radio ads that directly call on voters to support (or vote against) particular candidates. According to both election law professor (and blogger) Rick Hasen of the University of California at Irvine and Hispanic Leadership Fund counsel Jason Torchinsky of Holtzman Vogel Josefiak, there’s now a peculiar distinction between the ads at issue in the Van Hollen case – so-called electioneering communications that talk about particular candidates but stop short of recommending a vote for or against them – and “indirect expenditures,” in which groups run ads specifically urging you to vote for or against a candidate. The Van Hollen suit didn’t address indirect expenditures, so, according to Hasen, if non-profit groups want to keep their donor lists secret, they may switch their spending to ads that contain express advocacy.

Hasen said the groups risk losing their tax-exempt status if they do, but since none have apparently suffered that fate, “I think [the D.C. appellate ruling] is going to cause a shift.”

The bizarre distinction between “electioneering communications” and “independent expenditures” is the result of the U.S. Supreme Court’s 2007 ruling in Federal Election Commission v. Wisconsin Right to Life, which held that, contrary to Congress’s McCain-Feingold campaign finance reform, corporations and labor unions were permitted to spend money on election ads as long as those ads did not contain “express advocacy” for or against a candidate. (As you know, the High Court subsequently struck down all bars on corporate campaign spending in Citizens United v. FEC.)

The Wisconsin Right to Life decision didn’t strike down McCain-Feingold’s disclosure provisions, though, so after the ruling the FEC held hearings to figure out what groups had to disclose about the electioneering communications they were now permitted to run. Concerned by the burden groups would face if they had to disclose the name and address of everyone who gave them more than $1,000, the FEC decided to limit disclosure to contributions made specifically to facilitate the campaign ads.

That’s the rule Van Hollen and his counsel from Democracy 21 and Wilmer Cutler Pickering Hale and Dorr challenged. The Washington, D.C., district court agreed with them that the FEC doesn’t have the power to narrow disclosure obligations imposed by Congress, even when the Supreme Court has complicated matters. On Mar. 30, Jackson ruled that groups engaged in electioneering communications must make public contributors who donated $1,000 or more.

If two non-profits – the Hispanic Leadership Fund and the Center for Individual Freedom – hadn’t intervened to support the limited disclosure rule, the district court ruling would have been the last word in the case, because the FEC commissioners split on whether to appeal. The involvement of the non-profits, however, means the D.C. Circuit’s ruling Monday is only the beginning of the appellate road. The two groups can ask the entire circuit to review the stay denial en banc, and, if that doesn’t work, can eventually ask the Supreme Court to get involved. Without a stay of Jackson’s decision, the new disclosure obligations will take effect in this campaign cycle. Hispanic Leadership counsel Torchinsky declined to comment on the group’s next move, but Hasen, the election law expert, said the Supreme Court generally doesn’t like to see mid-campaign changes in the law and so may be inclined to grant a stay.

In the meantime, according to Torchinsky, electioneering communications have dried up since Jackson’s ruling took effect, which suggested to him that groups are worried about having to disclose their contributors. “The whole point of this was to discourage speech, and that is what Congress and the incumbent politicians have done,” Torchinsky said.

Democracy 21’s Wertheimer is already gearing up to address the loophole that may divert money to express advocacy by electioneering non-profits that want to keep their donors secret. His group has already filed complaints about such groups, including Crossroads GPS and Priorities USA, with the Internal Revenue Service, and he said Van Hollen is contemplating a suit similar to the one now at the D.C. Circuit, in which he challenges the FEC rule narrowing disclosures related to indirect expenditure ads.

Van Hollen co-counsel Roger Witten of Wilmer said the appellate decision not to stay Jackson’s ruling “was demonstrably” correct and he’s hopeful the lower court will eventually be upheld on the merits.